Ten Real-Life Steps for Teaching Money Management
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When your teens get older, giving them a weekly allowance may no longer make sense, as they want and need more control over what they buy. Often, their purchases are big-ticket items like clothes, shoes, and electronics, and thus more expensive than the toys and candy they wanted to save for as younger children.
If your teen is too young to get a job but too old for a weekly allowance, what can you do? Our family’s answer is a monthly teen salary.
I can’t really take credit for this great system. We’ve tweaked it to fit our family’s needs, but I’ve liberally borrowed concepts from Mary Hunt, author of Debt-Proof Your Kids and Raising Financially Confident Kids, and Susan Beacham of the Money Savvy Generation website. In general, the idea is to start turning over to your teens more budgeting responsibility for their personal expenses. Here’s how it works:
1. Assess how much you spend on your teen each year. Include things like clothes, shoes, makeup or optional toiletries, school lunches, friends’ gifts, entertainment with friends (movies without family, Starbucks stops, etc.), music downloads, cell phone plans, and other expenses. Add it all up. Chances are, you’ll be amazed at how much money you spend on your teen!
2. Divide by 12. Once you know how much your teen costs you each year (beyond basic necessities like food and shared family items, such as outings together), divide that grand number by 12. That’s your teen’s personal monthly budget.
3. Start the monthly budget turnover. You could turn it all over at once or break out what you spend on your teen’s clothes and toiletries and give that amount to your teen each month to manage and spend (which means allowing your teen to shop for his or her own clothes and makeup). When that monthly nut is gone, your teen has to wait for the next month’s installment—just like he or she would at a job.
We opted to turn over almost all of our teen’s expenses to her at age 13. For example, she has a pay-as-you-go cell phone plan, so it was up to her to buy her refill card each month. A few times, she forgot and went without cell service for a couple of days. She also took over her school lunch money. It was interesting how good she got at making her own lunch when she knew some of the money was hers to keep if she didn’t spend it on school hot lunch. And she started bargain shopping for clothes, gifts, and other items.
4. Give advice and training. We didn’t just turn over $150 a month to our teen without helping her learn to manage it. You may want to require a monthly 10-minute budget meeting before your teen gets each new check. Ask your child to predict what he or she will need to spend on various categories in the upcoming month. Then, recap how he or she spent the previous month’s salary. Our daughter keeps her receipts and totals them up each monthly. We try to give our opinion on her spending choices only when necessary.
5. Create the habit of saving. Your teens will probably have a few things they buy only once or twice a year. For our daughter, that included school textbooks and Christmas and birthday presents. Help your teen figure out how much to save each month to meet those annual obligations (for instance: $5 for friends’ gifts, $10 for holiday gifts, and $20 for textbooks). Our daughter is on a cash system, so she maintains a separately marked envelope for each category. It’s easy: When it comes time to buy books or holiday gifts, she has a nice stash of cash from which to draw.
You may also want to require your teen to save a certain percentage of his or her monthly salary for donations and to put a set amount each month into a long-term savings account.
6. Clarify ground rules. Create a written money contract you renew every year. It should clearly spell out which expenses your teen must cover on his or her own. The contract can change each year as your teen matures.
7. Choose whether you will link your teen’s money to work or extra chores. This is an individual family decision. In our case, our daughter does certain chores for no pay, simply because she’s part of the family. However, we’ve added some extra work each weekend (helping with my home-based business) that is linked to her monthly salary.
8. Decide on a stopping point. Now that our daughter is 16, her family salary won’t increase much. Her expenses might, but we want her to meet those with the help of a part-time job, rather than an ever-increasing handout from the Bank of Mom and Dad. It’s also smart to clarify when your teen’s family salary will end for good—perhaps at a predetermined date after he or she graduates from high school.
9. Set a loan policy. Generally, it’s not a good idea to allow your teen to borrow money from you—particularly during the first year on a more stepped-up system of money responsibility like this one. You want teens to learn to budget in advance, to save for items they really want or need, and make their salary last the entire month.
10. Think carefully about debit/credit cards. So far, we’ve opted to keep our daughter on a cash system. Spending is often a little more thoughtful when your teen has to do it in actual green dollars. In the next year or so, we might consider linking a debit card to her savings account for convenience. But credit cards will wait. For now, when our daughter buys something online, she pays us in cash, and we put the item on our credit card. We also model for her how we track our credit card purchases and pay off our account in full each month.
This teen money-management system has worked great for our family—and it has eliminated many arguments about expensive purchases and last-minute requests for weekend fun money.
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